Earnest Money and the Real Estate Commission

by | Feb 16, 2018 | Legal Tips

The South Carolina Real Estate Commission recently ruled that earnest money may not be released unless the parties to the contract sign a release or a court order is issued. The Commission’s ruling, however, flies in the face of the statute and most sales contracts.

This ruling unfortunately ignores a significant portion of the statute. First, South Carolina Code §40-57-135(B)(4)(C) holds that “. . . the monies must be disbursed in accordance with the contract . . . ”  Secondly, the statute states that, “If a dispute arises between buyer and seller concerning the entitlement to and disposition of an earnest money deposit, and the dispute is not resolved by reasonable interpretation of the contract by the parties to the contract, the deposit must be held in the trust account until the dispute is resolved by a written agreement . . .” The ruling totally ignores the first and last portions of the statute, which say that unless the dispute is “not resolved by reasonable interpretation of the contract.” Many disputes over earnest money are not truly disputes but rather are an attempt by one party to extort money from the other party. The plain language of the contract clearly dictates the proper disbursement.

For example, if the sales contract is contingent on an appraisal for $200,000 and the property appraises for $180,000, the Central Carolina REALTOR Association contract dictates earnest money be released to the buyer if the buyer terminates. The ruling, however, holds that the earnest money may not be released to the buyer unless the seller signs a release. This effect is contrary to the statute because there is no other reasonable interpretation of the contract other than that the money should be released to the buyer. An unreasonable seller should not be able to hold the earnest money and the buyer hostage. Otherwise, the provision now becomes contingent on appraisal and the seller’s agreement to release the money.

Since this ruling, many real estate agencies like Century 21- Vanguard and The ART of Real Estate have decided to no longer hold earnest money. We expect others to follow suit. In North Carolina very few agencies hold earnest money. Blair Cato is now holding earnest money for these two companies. If you get a contract from one of these companies you will also receive an escrow agreement that essentially says Blair Cato is holding the earnest money and will disburse the funds pursuant to the terms of the contract.  The addendum does not change the terms of the contract; rather, it simply states that as attorneys we are not subject to the rules of the real estate commission or the statute governing real estate agents. A copy of the agreement is attached below for your review.  If you have any questions, please contact me.

Next week we will address some other options on handling earnest money to possibly negate some of your client’s risk.

BLAIR CATO’s MCE/CE Classes are quickly selling out. The first class has already Sold Out and the second class is almost full. Register before it is too late! 


Escrow Money Agreement


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